Near 50-year high German inflation strengthens case for larger ECB rate rise
German inflation rose to its highest level in almost 50 years in August, beating a high set only three months earlier, data showed, strengthening the case for the European Central Bank to go for a larger basis-point interest rate increase next month.
Consumer prices, harmonised to make them comparable with inflation data from other European Union countries (HICP), increased by 8.8% on the year, following an unexpected 8.5% rise in July, the federal statistics office said on Tuesday. The reading was in line with a Reuters poll of analysts.
The rise comes despite government measures meant to stifle inflation, including cheaper public transit tickets and a fuel tax cut, that are set to end on 31 Aug. Without any follow-up measures, analysts predicted inflation in Europe's largest economy could reach double digits before the end of 2022.
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"Judging by the current inflation rate and what is still to come, the ECB should actually launch a jumbo interest rate step," said VP Bank chief economist Thomas Gitzel.
The ECB raised its deposit rate by 50 bps to zero in July and a similar move was expected for September until recently, but a host of policymakers made the case for discussing a 75 bps increase as well.
At 8.9%, euro zone inflation is already more than four times the ECB's 2% target and could exceed 10% in the coming months.
German inflation rose to 8.7% in May, which had marked the first time since winter 1973/1974 - when the first oil crisis led to a new and difficult-to-tame inflationary cycle - that inflation had been so high, the office said at the time.
Energy price increases as a result of the war in Ukraine have been the primary driver behind higher inflation; August's energy prices were 35.6% higher than the same month last year.
